Eminent Domain

Eminent domain is a constitutional right that allows the federal, state, provincial, or municipal government to seize private land or property for public purposes without the owner’s consent. The owner receives just compensation, i.e., the fair market value of the property in return.

The authorities exercise this power to construct government buildings, highways, railroads, sewer lines, and other public infrastructure projects. Besides real estate, the law applies to contract rights, trade secrets, copyrights, patents, and intellectual property for public use. However, owners have the right to disagree with the deal if the amount is not sufficient. It is also known as condemnation or expropriation in some jurisdictions.

• Eminent domain is the right of the local, state or, federal government to take private land or property and convert it for public use in exchange for paying just compensation to the owner.
• The law of condemnation deals with conflicts between private interests and public necessities.
• In addition to real estate, the idea encompasses personal property, leases, contract rights, trade secrets, copyrights, patents, intellectual property, and other financial instruments, such as stocks and investment funds.
• The government's capacity to assume control of any land or property can lead to condemnation abuses, where owners might feel exploited.

Eminent domain power permits a federal, state, and local authority to identify, acquire, and convert a property for public use or purpose on meeting certain conditions. Its origin dates back to Magna Carta. It was a royal charter of rights signed by King John of England and rebel barons in 1215. It was when kings seized properties owned by barons and compensated them in exchange for taking.

The government estimates the market value of the property before offering just compensation to possess it. If the property owner does not think the amount is fair or questions the legality of the possession, the court will hear the matter. However, these legal disputes are costlier and time-consuming, as per the U.S. Department of Home Security report of 2009.

According to the Fifth Amendment of the United States Constitution, eminent domain in real estate works on two basic principles:

• Authorities must use the property for public purposes.
• The owner must receive just compensation in exchange for taking.

The eminent domain law addresses conflicts between individual interests and public needs. According to the condemnation jurisprudence, if the property owner refuses to sell their property despite the fair compensation, the government can take its possession without their consent. The law also states that an individual should not have the right to stop the task planned for public welfare.

On the contrary, the law of condemnation empowers an individual to respond negatively to the government acquisition of the property for public use. It is only if the stated property is already in use for the greater good of the public.

The concept of condemnation extends beyond real estate. It covers personal property, leases, contract rights, trade secrets, copyrights, patents, intellectual property, and financial instruments like stocks and investment funds. It goes by various names in different parts of the world:

• Eminent Domain - The United States and the Philippines
• Compulsory Purchase or Compulsory Acquisition - Australia, Republic of Ireland, New Zealand, and the United Kingdom
• Resumption - Uganda and Hong Kong
• Land Acquisition - India, Singapore, and Malaysia
• Expropriation - France, Mexico, Italy, Canada, Brazil, Germany, Russia, Spain, South Africa, Canada, etc.

The term "confiscation," as opposed to "condemnation," denotes the government acquiring private property without compensating the owner. Similarly, if authorities do not pay the owner fair market value for taking, it may result in legal disputes, known as inverse condemnation.

Let us have a look at eminent domain examples below to comprehend the concept:

Example #1

Maria's only means of livelihood was her residential property in Phoenix, Arizona, which her husband had left behind after his untimely death. Because of its remote location, the region was suitable for the local government to build a manufacturing plant, providing local employment.

Her house fell in between two plots of land where the authorities intended to build the factory. As a result, they offered Maria the market value of the property. She accepted the compensation and relocated to a better place to spend the rest of her life and earn a living.

Example #2

In a case involving a land dispute in New Jersey, the U.S. Supreme Court ruled, in favor of the PennEast Pipeline project proposed by PennEast Pipeline Co., LLC, a consortium of five energy firms, including Enbridge, New Jersey Resources, South Jersey Industries, UGI, and Southern Co. It permitted the consortium to acquire land in New Jersey to construct the natural gas pipeline worth $1 billion from Pennsylvania to New Jersey.

The court overruled the state's objection to the proposed condemnation, citing the Natural Gas Act of 1938 as the guiding force behind the verdict. It stated that the law allows private energy firms to seize land for projects if they obtain a certificate from the Federal Energy Regulatory Commission (FERC).

The government's ability to seize any property can lead to condemnation abuses, in which the owner feels exploited. Some of the well-known cases include:

• A widow inherited her husband's commercial property in Las Vegas, Nevada, which became her only source of income in retirement. The city, however, declared the area as "blighted" without even evaluating it and selected it for condemnation. The lady lost her legal battle as she could not attend a court hearing that she was unaware of.
• The city of West Baltimore, Maryland, recently took over 500 homes for a redevelopment project. It came more than a decade after the city struck an agreement with La Cite, a New York developer. The government exercising its power in such aging cities is quite a common phenomenon. It is, however, claimed that the displacement, in this case, will disproportionately affect low-income and working-class residents.
• In 1999, DaimlerChrysler announced to expand its Jeep manufacturing factory in Toledo, Ohio, creating 4,900 jobs. Because of the expected employment growth, the city awarded the carmaker more than $280 million in tax breaks and incentives. Also, city authorities selected 83 well-maintained residential and 16 commercial properties for condemnation. However, DaimlerChrysler could only employ 2,100 people because of the fully automated operation of the plant.

This has been a guide to What is Eminent Domain its Definition. Here we discuss eminent domain terminology and how does it work in real estate, along with abuses and examples. You may also have a look at the following articles to learn more –

• Real Estate Commissions
• Short Sale in Real Estate
• Real Estate vs Stock Investment